Russian Cabinet Agrees Small Business Tax Reforms

by Tatania Smolenska, Tax-News.com, Moscow

05 April 2002

Small business was the main subject of discussion at yesterday's session of the Russian government. The Cabinet of Ministers is preparing a large-scale programme of support to entrepreneurs for the next three years, including investment, tax reductions and credits.

The government estimates that seven million people work in firms qualifying under the heading 'small business'. However, there is no definition of what a small enterprise means at present, and the ministers have to settle this question too, so that it is clear who can pay taxes under the simplified scheme. Plans are to describe as small any enterprises where the annual turnover does not exceed R10m and which have no more than 20 workers. However, it is possible that this category will be broadened.

Two tax schemes are proposed for small business to choose: either to pay eight per cent on total proceeds, or to pay twenty per cent on profits. This will replace most of the existing taxes: sales tax, profit tax, VAT and property tax; and the plan is to cancel the united social tax. Small enterprises will then be able to have only a sales and purchases book instead of the complete accounting system which has to be used by all companies at present.

Presidential adviser Andrei Illarionov said: "This is a philosophy of creating a competitive economy and a competitive society, so that we do not leave ourselves any worse off than anybody in the developed countries."

The draft law agreed yesterday will have to be sent to the Duma by 10 April if it is to complete its three readings during the spring session.

First Deputy Finance Minister Sergey Shatalov said last week that the government has been systematically reducing the tax burden. "In the first year of reform the tax burden was lightened by 2 per cent of GDP, and in the second year by another 2 per cent of GDP. "For the consolidated budget this meant losses of about R200bn," Shatalov said, adding that the government regards this as investment in the future. With oil prices continuing to rise, this is an investment it can probably well afford.

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